I thought these tests (in the US anyway) were given after the immigrant has spent a few years here. Since an immigrant must wait seven years before being eligible for US citizenship (before that they have a green card, but are NOT citizens), we can assume the immigrant had an opportunity for seven years of immersion. I spent ONE year in Guatemala and became quite proficient in Spanish in that time--seven years is plenty of time....
If this test is administered "at the border", of course it will fail many. But is it? I assume (a UK citizen can clarify) that the UK, like the US, has a "waiting period" before immigrants can be eligible for citizenship, and can thus take this test.
The question of the thread though is SHOULD they have tests like this? I would say, they should probably have a test on the Constitution and the basic system of government, etc.--so that they are at least informed of their rights in society, so no one can take advantage of their not knowing. As for overall language proficiency (beyond this test of the Constitution being given in English), I don't see where this is universally relevant for ALL citizens. Sure, it is beneficial to most, but an elderly immigrant (who will find much more difficulty learning a new language due to his age) surrounded by his more proficient children will not suffer so much as a young immigrant on his own. In fact, many older immigrants to the US during the 1800s and early 1900s never really learned English, they left that to their children--and yet they made out fine, and often prospered to the benefit of the rest of society.
But at any rate, some people assimilate language easier than others (based on factors other than an advantage observed based on youth), but that ability isn't necessarily a requirement for succeeding here. I would say you should know enough English to communicate basic information, but how good you are at grammar or spelling (unless you plan to attend universities here, in which case you take a more rigorous TOEFL exam) isn't all that relevant. Or, however important it IS should be determined by an individual in whatever circumstances he finds himself in during his "waiting period" for citizenship. I think a better test is what he has DONE during the "waiting period"--is he gainfully employed or more or less self-sufficient (or being fully taken care of by his family's resources at least), rather than dependent on the state? Has he kept out of trouble with the law? THESE things, IMHO, are more relevant to good citizenship than ability in English.
